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Tag: ELSS

5 Advantages of Investing In ELSS

Equity Linked Savings Scheme or ELSS is an equity mutual fund which has two-way benefits: excellent returns and tax saving. Thus it is a profit plus savings investment option that have multi-faceted advantages in the present market. Here are 5 advantages of ELSS that makes it a popular option for all investors.

adv of ELSS

Low Initial Investment Value

One of the primary advantages of ELSS is its low initial investment cost of Rs.500 (minimum) per month. Often investments generating high return rates tend to be costly and hence is not an affordable option for the majority. But any individual can invest with a minimal value. Since the concept is to invest in market shares the initial cost is a profitable aspect as you are getting greater returns for lower cost.

Flexible Lock-In Period

ELSS generates the best returns if invested for a longer period of time. But keeping an emergency scenario in mind, the lock-in period has been set at 3 years. This means that funds can be drawn from ELSS after a short tenure of 3 years and the funds withdrawn will be completely exempt from taxes. Thus it can be said that the lock in period is flexible and can be risked by all investors.

Tip: ELSS is not bound by a long lock duration, but is financially advantageous if the investment is for a longer period. This is because the market share rates are volatile and show an unpredictable graph of increase and decrease at times. But if invested for a longer time the average rates are almost always high producing good returns.

ELSS Generates Excellent Returns

ELSS generated returns are based on several market aspects. This includes the growth of stock, the present share value, etc. Thus it produces an overall return value from all sides making it an extremely beneficial investment. Other savings and investment schemes promise a return 8%-9% on the average scale. But when it comes to stocks of good quality produce very high returns, especially in the Indian economy. Thus the average return is 22.9% as calculated on the basis of last 3 years.

Can Be Linked To Other Trending Investments Like SIP

With the initial cost as low as a minimum of  500 INR per month, periodic investment is made easier for individuals. Thus continuous profits are gained on continuous investment. This concept can be made more beneficial by linking a SIP with the ELSS Scheme. Thus along with the funds saved in ELSS, a return amount will be generated monthly after the lock-in period of 3 years. The return amount generated will be due to the SIP investment linked. Moreover, as ELSS is exempt from taxes, the returns you gain on SIP is not taxable. Thus you can save and earn simultaneously.

Tax Benefits Of ELSS

ELSS is a tax saving scheme that falls under the Section 80C of the Income Tax Act. This means that it is an investment plus savings scheme of mutual funds that qualifies for tax deductions. According to Section 80C, the tax deductions are up to 1.5 Lakhs INR. Also, the returns earned (after the lock-in period of 3 years) is completely exempt from taxes. Thus ELSS ensures returns with tax exemption.

Also Read: 5 Mistakes to Avoid while investing in ELSS

Is ELSS for Senior citizens?

ELSS For Senior Citizens- YES or NO?

ELSS is an investment that is not exactly centered around senior citizens. This is the reason why there is a misconception regarding its benefits for senior citizens. Another notion related to this is that ELSS returns depend on market trends. Thus it is not suitable for senior citizens to invest in it as it involves taking a lot of risks. The truth, in fact, differs. ELSS is beneficial for senior citizens in many ways only if a judicious investment is done. Let us consider the possibility that ELSS holds for a senior citizen.

ELSS for senior citizens?

The Age Factor

The age factor usually deters senior citizens from investing in an ELSS scheme. This should not be the case. Practically thinking, ELSS is more beneficial with a short lock-in period of 3 years. This means that funds can be withdrawn within a short tenure in a case of an emergency. Also after the lock-in period, the withdrawn amount is not taxable. Another aspect of ELSS is its long-term benefits. It is safe to say that on an average, senior citizens who have just attained the age of 60 have 12-15 years of time to devote to investments. In such cases, ELSS generates the best returns as it has been seen that on a long term basis ELSS reaps highly profitable gains. Thus both tax savings and high profits requirements are met, which is essential for senior citizens.

Judicious Investment in ELSS is Completely Risk-Free

It is obvious that a risk factor is involved with ELSS as the scheme depends largely on unpredictable market trends. Though in the long run, it is almost always advantageous, senior citizens might have to think twice before taking the risk. But let us consider the positive side here: ELSS generates excellent returns with tax benefits. So why not avail these benefits in parallel to taking a safe route? Thus judicious investment must be made in ELSS. Instead of complete exposure to ELSS, part of investment must be made in it. With an initial investment cost of 500 INR per month (minimum), it is an affordable option. This would ensure three things:

  • Tax savings of up to 1.5 Lakhs INR through different schemes along with ELSS.
  • Security provided by the investments other than ELSS will mitigate risks largely.
  • ELSS will generate excellent returns.

A Regular Means Of Income

ELSS is technically an excellent retirement scheme. Low investment cost per month ( INR 500 minimum), the tax benefits plus the high return rates makes it one of the best investment scheme. The judicious investment will also lower the risk that ELSS presents. Keeping all these factors in mind including the lock-in period of 3 years an individual can take any of the following routes:

  • Investing in ELSS with SIP 3 years prior to retirement: If this scheme is followed, SIP will generate monthly returns after completion of 3 years. The returns are not taxable as SIP is done under ELSS. Thus on retirement, the flow of income will not cease.
  • Investing in ELSS post-retirement as savings: This is a savings option that can be considered. If investment in made in ELSS, and withdrawal is made after 3 years an average return of approximately 22.9% will be generated (as per recent calculations). Again this serves as an income source and will be beneficial in case of an emergency.

 

 

 

Tax Saving Options: Where Should You Invest Your Money

Investment for tax saving is something that confuses every individual. A plethora of choices but an inadequacy of information. So here are the list of all investments and their tax benefits that will definitely help you decide further.

tax saving options

ELSS: Equity Linked Savings Scheme

The financial year 2017-2018, brings a new India under demonetisation and various schemes changing the nature of Tax Saving Act. Equity Linked Savings Scheme is a Mutual Fund which is diverse in nature. It is viable for Tax Exemption under Section 80C. It has a lock period of 3 years meaning that no withdrawal can be done from the ELSS account for 3 years.

Under this scheme, all investors will be having a two-way benefit: high returns on the investment and deduction of taxes.  The biggest advantage here is that dividends that are gained under ELSS schemes are exempt from taxes thus the profit returned is high. Also, ELSS has a short lock period enabling the investor to access the amount invested and the returns easily. All in all, ELSS is the best place to invest your money.

ELSS Rating: 10 Star

Read: Mistakes to avoid while investing your money in ELSS

NPS: National Pension Scheme

The National Pension Scheme has been revised and a New Pension Scheme has been introduced for the benefit of private and semi-government employees. Under this scheme, apart from all government employees, the private employees will also receive an annuitized pension amount on investment in NPS. A huge benefit is that an additional deduction of INR 50,000 will be made in taxes for a citizen investing in NPS.

Thus, the tax deduction on contribution to NPS will be 2lakhs rather than the stipulated 1.5lakhs. When compared to ELSS, the lock period is higher and even after retirement, only 40% of the investment can be withdrawn. Also, the returns may not be as high as ELSS dividends. But as far as tax saving is concerned NPS is an excellent scheme.

NPS Rating: 9 star

NPS: Should you invest your money in NPS

ULIP: Unit Linked Insurance Plan

The Unit Linked Insurance Plan, commonly known as ULIP is like an integrated insurance policy that gives the benefits of both an insurance policy and an investment scheme. It is a flexible scheme that enables the investor to switch between diverse options, invest in other linked schemes or surrendering of the policy. ULIP is viable for tax benefits under the section 80C.

Along with that, the returns on the investments are profitable. The only disadvantage is that withdrawal is not possible from a ULIP account till the sum matures. But apart from that, it is a risk-free scheme giving a three-way benefit: tax savings, returns on investment and insurance cover.

ULIP Rating: 8 Star

PPF: Public Provident Fund

The Public Provident Fund is an integrated monetary savings and tax savings account. This scheme aims at providing a flexible saving by allowing investments and good returns along with tax benefits. The PPF account is an attractive investment scheme as the interests on investments are completely exempt from taxes.

Related article:

How To Open A Public Provident Fund Account

The only drawback is that PPF is monitored by the government hence the interest rates may not be as high as private Mutual Funds. Otherwise, it is an excellent option for someone who is building up a long terms savings account for the period after retirement. PPF also allows benefits in taxes for nominees of the primary account holder.

PPF Rating: 8 Star

VPF: Voluntary Provident Fund

The Voluntary Provident Fund is an extended version of the PPF wherein an investor is allowed to add a stipulated value to the provident fund periodically. It is viable for tax deductions under Section 80C and an amount up to 1lakh can be saved under it. An additional benefit of VPF is that it helps an investor increase the financial assets in the provident fund from time to time. The interests gained on VPF investment is not taxable till the interest rates reach 9.5%. So the disadvantage occurs when the interest rate becomes 9.5%. Otherwise, it is an excellent tax saving and investment option.

VPF Rating: 7 Star

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a government scheme introduced by Narendra Modi to empower a girl child and ensure proper education for her. The parents of the girl child investing in this scheme will get tax benefits as per Section 80C. Plus the returns on investment made to this account will be used for funding education expenses for the girl child. The disadvantage of this scheme is that it is gender specific so a large number of people cannot avail it. Also, the returns are sometimes insufficient in fulfilling all requirements. But other than that it is an excellent scheme for both tax saving and providing financial security to the girl child.

Sukanya Samriddi Yojana Rating: 6.5 Star

Senior Citizen Savings Scheme

The Senior Citizens Savings scheme is to support all senior citizens by increasing the return rates on their investments. It is an attractive tax saving scheme but the returns are taxable at source if the interest amount exceeds INR 10,000 per annum. Otherwise, it is an excellent scheme with high return rates specifically designed for senior citizens.

Senior Citizen Savings Scheme Rating: 6 Star

NSCS: National Savings Certificates

The National Savings Certificates, most commonly known as NSCS are a risk-free investment option for all working citizens. The investment in NSCS can be made for 5 years or up to a decade and it generates a fixed income like fixed deposits. An annuitized fixed income is returned on this investment at a rate of interest decided by the government of India. This scheme is viable for tax deductions under Section 80C only if the interest gained from NSCS are shown as income. An annual investment up to INR 1 lakh is to be made for tax savings. So apart from the fact that NSCS ensures tax savings only after a few hassles, it is a good investment option with high returns.

NCSC Rating: 5 Star

Bank FDS: Fixed Deposits

Bank Fixed Deposits are a long term investment schemes with fixed returns on maturity. All schemes under fixed deposits do not qualify for tax deductions. Thus to ensure tax saving through Fixed Deposits, an account known as Tax Saving Fixed Deposit needs to be commenced. These fixed deposited are viable to tax deductions up to 1.5lakhs like other tax saving schemes. Though in the long run, the returns generated will not be as high as ELSS. Also, the withdrawal policy is not flexible but it ensures tax savings and a good lump sum after maturity.

Fixed Deposit Rating: 5 star

Related Post:

5 Reasons You Should Invest In A Fixed Deposit Today

Pension Plans

Pension Plans enable an investor to contribute part of their savings in a pension scheme. This amount matures like recurring deposits and thus generates huge monetary accumulations. Thus good income can be gained from pension plans after retirement. The only disadvantage is that no returns are generated from pension funds till the investor reaches an age of 60. Also, after maturity 2/3rd of the returns are treated as income and are taxable at marginal rates. But initially, this is viable to tax deductions up to 1lakh under Section 80C. Thus pension funds help in tax savings for 1/3rd of the lump sum and provide an excellent accumulation, financially.

Pension Plan Rating: 4 Star

Insurance Policies

The tax deductions are separate for all insurance policies. In the case of life insurance, an individual is liable for tax deductions up to 1.5lakhs. After the death of the insured individual, all proceeds are tax-free. In the case of health insurance, the tax deductions are INR 20,000 for senior citizens and 15,000 otherwise.In case the insured individual is facing a life threatening health condition, all proceeds are tax-free.

Also Read: This is why you should invest in LIC

Thus from the tax saving point of view insurance policies do not have much to offer. But in the long run, insurance is an important necessity.

Insurance Plan Rating: 3 Star

 

Investing in ELSS: 5 Mistakes to Avoid if you are an ELSS investor

ELSS is one of the best tax saving schemes that has been giving great returns from last few decades. However, a majority of the people who invests in ELSS does not get a good return. There can be many reasons, but mainly they commit five common mistakes which I have listed below. Avoid these mistakes while investing in ELSS, and get a return better than any other tax saving scheme is guaranteed.

ELSS investment scheme

1. Do not invest lump sum in the last three months

As per AMFI data, more than 50 percent inflow in ELSS accounts takes place in the last three months of the financial year, almost half of which comes in the month of March alone. Lump sum investments may not always help. Rather, one should consider systematic investments in SIP. To get better returns, one must consider investing when the markets are low. Plan your investment wisely.

2. Deciding looking at the short term performances

Do not make a mistake that most of the investors do. Do not decide in which ELSS you should invest look at the past few months or 1 year’s performance. This should not be your criteria for choosing the best ELSS to invest on. Rather, look at the past 3 to 5 years performances to decide where to invest. Follow Valueresearch’s website as they take into count many things including stability of the equities before rating them.

3. Are you biased towards Dividend based ELSS schemes?

We sometimes, looking at the dividend given, choose the ELSS schemes. We think, if a company offers more dividend, then our returns will be more. However, this is not always true. When a company pays a dividend, they are paying you a part of their profit which otherwise would have stayed invested. When they give you the money in the form of a dividend, the amount is no longer invested and you do not get any return out of it. You should rather see dividends as another way of profit booking.

So, the advice is: refrain yourself from dividend based ELSS if you are eyeing on a long term investment.

You may now think of investing in dividend reinvesting option. Don’t. Let me tell you why. Every time your dividend is reinvested, the lock-in period of 3 years starts and this keeps happening every single time.

4. Smaller funds = Less Returns

If you think smaller funds never give high yields then you are wrong. If you look at the performance of ELSS in the last ten years, you will notice that the Invesco India Tax Plan has given the maximum benefit. Despite being Asset Under Management value as only 320 Crore INR, this plan has given the best return. However, not many people could get the benefit from this scheme as they refrained themselves from investing in smaller funds.

By now, you may have realized smaller funds can also give you better returns. So do your homework before investing.

5. Lock-in = Maturity

Lock-in period is not your maturity period. So, when the lock-in period is over, do not think of redeeming the amount. Keep investing. You will get profit when you eye on a longer term. For a shorter term, the return may not be as expected.

Where should you invest your money in 2017 for best returns

Are you a risk taker? How good are you at taking a risk? How much loss can you bear? Or, do you like to play safe? What is your age? Based on the answers to these questions, we would be able to tell where and how you should invest your money in 2017.

Generally speaking, you can invest your money in the following way:

Invest in savings

The first most thing you should invest your money is in savings. You should atleast have 1.5 lakh in your bank account for any emergency needs.

Invest in land

Investing in land always has given unmatchable profits. Even today, post demonetization, the real estate market is still a gold mine for many investors. The land price has increased at an enormous pace, and it is expected to follow the same trend. Real estate is one such sector that will continue to grow exponentially from here on.

Invest in FD

Want to play safe? Invest in a Fixed deposit. Fixed deposit is the best-assured investment plan. Nothing beats fixed deposits when you want secured interests for longer terms. The best part about FD is that you will never be in loss. However, with the development of the country, the interest rate would keep on decreasing and will be lower than the current rate. You can invest 15 percent of your money in FD.

Also Read: Why you should invest in Fixed Deposit

Start SIP

Have you started investing in SIPs? If not, then start today. Keep long-term view in mind. If you are below 30, you can start 2-3 ELSS. The best thing about ELSS is that you will be able to save tax since it comes under section 80C of income tax act.

Also Read: Avoid these 5 mistakes when investing in ELSS

Invest in Share Market

This is the best way to earn without paying taxes on the profit. As of now, you need not pay taxes on the profit you are making, provided you sell your shares after one year from the date of purchase. Plus equity market has grown a lot in the last 20 years, as it continuous to do so even today. If you invest in right stocks, there are huge chances of making a good amount of money. But for that, you may need a good knowledge of stock market. Research, learn and invest. Please note, investing in stock market is risky. If you invest in wrong companies, you may end up losing all your money in no time. It is always better to consult a certified investor and take suggestions from him/her before investing.

Invest in Mutual Fund

Don’t you understand stock market? Or if you do not have much time to keep track of the market on a regular basis, you may invest in Mutual funds. Mutual funds are taken care of by investment bankers who understand the market; they buy shares of companies after doing comprehensive research. But again, mutual funds are risky too. Chances are there that you may lose your money. So, you must read the scheme related documents carefully before investing.

Also Read: Why you should invest in Mutual Funds

Invest in LIC

Did you invest in LIC? If not, you should invest some part of your earnings. And, investing in LIC falls under section 80C of Tax, so you don’t need to pay tax (subjected to terms and conditions). It is one of the mostly used Tax saving schemes in India

Invest in Health Insurance

Get a health insurance today. With mere 10000 INR a year, you can start a health insurance in India. If not used, you may lose the entire money. But if you think in longer perspective, you can save a lot with a proper health insurance policy.

Public Provident Fund

Public Provident Fund is one among the low-risk investment options that ensure excellent returns in the long run. It is completely tax-free and liable to tax deductions under the section 80C of Income Tax Act. The only disadvantage is that in PPF the amount gets locked up to 15 years after which it matures. But from the retirement point of view this will give good annuitized returns. Also since PPF is a government managed scheme the unpredictable trends of market rates post demonetisation are not applicable. Thus this scheme also offers a certain level of stability.